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Aussie shares were poised to open higher as strong gains in oil and iron ore helped offset a mixed finish on Wall Street as investors fretted about inflation.
ASX futures climbed 12 points or 0.17 per cent, signalling a positive start after two straight losses. The S&P/ASX 200 declined 19 points or 0.27 per cent yesterday as the prospect of record-low rates until 2024 weighed on lenders.
The US energy sector surged almost 4 per cent overnight after oil smashed through US$70 a barrel. Iron ore jumped more than 5 per cent, back above US$200.
Wall Street
The S&P 500 and Nasdaq shed early gains as investors weighed optimism about the improving economy against inflationary worries. Cyclical sectors leveraged to the global economic rebound outperformed. Growth stocks declined as bond yields crept higher.
The S&P 500 finished two points or 0.05 per cent weaker. The Nasdaq Composite shed 12 points or 0.06 per cent. The Dow Jones Industrial Average clung on to a gain of 46 points or 0.13 per cent after being up as much as 300 points.
The session got off to a bright start amid positive signals about the improving outlook. Covid numbers declined over the Memorial Day long weekend. Air traffic hit a pandemic-era high. Data showed more than half of all Americans have received at least one shot of Covid-19 vaccine.
The May US manufacturing report came in stronger than expected. The headline ISM gauge was 61.2, versus the expected 60.9. However, the report also showed some companies were struggling with obtaining components or finding enough staff to meet demand.
“The economy certainly is growing and that’s a positive, and again it’s a positive for the most cyclical parts of the stock market,” Kristina Hooper, chief global market strategist at Invesco, told Reuters.
Reopening plays advanced. The S&P 1500 airlines index rose 0.77 per cent. Dow component Boeing climbed 3.12 per cent. Cruise lines Carnival and Norwegian gained 2 and 2.7 per cent, respectively.
The S&P financial sector hit a record as the yield on ten-year US treasuries climbed back above 1.6 per cent. (Higher rates allow lenders more room to increase margins.) Yield-sensitive growth stocks declined. Microsoft, Apple, Netflix and Tesla all finished lower.
Inflation worries have fuelled increased volatility and sporadic share market sell-offs this year. Overnight, Federal Reserve officials Neel Kashkari and Randal Quarles reiterated the Fed line that this year’s jump in prices will be transitory.
Australian outlook
Not a strong set of leads, but probably enough for a tentative rebound from two days of selling, provided the 11.30 am AEST quarterly GDP report contains no nasty surprises. Economists expect the report to show the economy expanded around 1.5 per cent over the first three months of the year. That would be the weakest growth since the pandemic recession, but still robust by historic standards.
The S&P/ASX 200 hit a record high on Friday before succumbing to month-end ructions and the dulling effects of a US holiday. Today should see a tentative move back towards those highs, thanks to strength in energy, mining and bank stocks.
The US energy sector surged 3.93 per cent, materials 1.69 per cent, financials 0.66 per cent and industrials 0.42 per cent. Healthcare sank 1.64 per cent, utilities 0.62 per cent and tech 0.42 per cent.
Worley holds an investor day today. Education technology firm Keypath Education International is due to list.
The dollar advanced 0.12 per cent to 77.52 US cents.
Commodities
Iron ore soared back above US$200 a tonne, defying Chinese attempts to bully the market lower. The spot price for ore landed in China surged $10.35 or 5.2 per cent to US$209.10 a tonne. Ore landed at Tianjin has jumped $21.45 or more than 10 per cent in two sessions.
“As long as demand globally remains strong (including China) and markets are tight, we think it is unlikely China’s authorities will be able to push prices down on a sustained basis,” Bank of America told investors. The bank said the Chinese steel market remained “tight”.
BHP‘s US-listed stock climbed 2.96 per cent and its UK-listed stock put on 3.58 per cent. Rio Tinto added 3.85 per cent in the US and 3.97 per cent in the UK.
Oil scored its highest finish in two years after the Organization of the Petroleum Exporting Countries and allies stuck to their plan to increase production slowly this year as demand recovers. Brent crude settled 93 cents or 1.3 per cent higher at US$70.25 a barrel after trading as high as US$71.34.
“Sticking to increases planned at the April meeting is what the market needs,” Ann-Louise Hittle, vice president Macro Oils, at Wood Mackenzie, wrote. “Demand growth is outpacing supply gains even with the agreed month-by-month OPEC+ production increases taken into account.”
Gold dipped as bond yields rallied. Metal for August delivery settled 30 cents or 0.02 per cent lower at US$1,905 an ounce. The NYSE Arca Gold Bugs Index gained 0.7 per cent.
Copper faded amid signs record prices were denting Chinese demand. US copper eased 0.5 per cent to US$4.65 a pound.
“Prices have come too far and risen too fast… they have decoupled in part of fundamentals as some metals are in oversupply,” Commerzbank analyst Daniel Briesemann told Reuters.
